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Steinhoff Deals Come Back to Haunt Retailer in PwC Investigation

Renee Bonorchis, Bloomberg News

(Bloomberg) -- For 20 years, global retailer Steinhoff International Holdings NV thrived off deal-making -- from the U.S. and the U.K. to South Africa and Europe. Now, some of those transactions are back in the spotlight, and not in a good way.

The long-awaited summary of PwC’s more than 3,000-page forensic investigation into Steinhoff’s activities has identified what it described as fictitious and irregular transactions with parties that appeared to be closely related to the same small group of people. Irregular transactions with eight firms not tied to the Steinhoff group from 2009 and 2017 amounted to 6.5 billion euros ($7.36 billion), the 10-page PwC summary released on Friday showed.

The summary did not name the deals the auditing firm had found to be questionable, but said they fell into four categories, including profit and asset creation, asset overstatement and reclassification, asset and entity support, and contributions.

“In general terms, the PwC report finds that the fictitious and, or irregular transactions had the effect of inflating the profits and, or asset values of the Steinhoff group,” according to the summarized report. “The PwC report identifies three principal groups of corporate entities that were counter-parties to the Steinhoff group in respect of the transactions that have been investigated.”

‘Legal Privilege’

PwC was mandated by Steinhoff to study the retailer’s accounts when it disclosed irregularities at the end of 2017. Swamped with work, the auditing firm was limited to investigating transactions dating back to 2009, the summary of the report shows. The full report will not be made public because it is “confidential and subject to legal privilege and other restrictions,” the accounting firm said.

Documents seen by Bloomberg show that companies linked to Steinhoff’s former Chief Executive Officer Markus Jooste sold car-dealership properties and forestry plantations to Steinhoff for far more than market prices in transactions that began as early as 2001. Jooste couldn’t be reached for comment as his phones didn’t ring when called by Bloomberg on Friday. His lawyer didn’t immediately respond to an emailed request for comment.

An example of the over-valuation of properties sold to Steinhoff can be shown in the transactions linked to one plot, 28 Lake Avenue in Benoni, east of Johannesburg. The land, a little bigger than two tennis courts, is on a street lined by dilapidated buildings in an industrial area. Three nearby stands on that road sold for an average of 670,000 rand ($46,600) in 2007, online records at Property24show. A company linked to Jooste bought it in 2002 for 4.79 million rand and then sold the plot to Steinhoff’s property unit in 2007 for 33.7 million rand, records show.

Over and above the three groups identified as counter parties in various transactions “other corporate entities have also been identified together with a finding that there was a practice of using similar entity names and changing company names resulting in confusion between entities,” PwC said in the report. “Various transactions were entered into to obscure the extent of the overstatement of the assets.”

Jooste in September told South African lawmakers that the origin of the company’s woes related to protracted dispute with a former partner. He also said he wasn’t aware of the financial irregularities reported by the company the day he quit. Instead, he blamed Deloitte LLP for wanting an additional probe into allegations of financial mismanagement in Europe just days before the retailer was due to report 2017 financials.

To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

To contact the editors responsible for this story: Alastair Reed at areed12@bloomberg.net, ;Antony Sguazzin at asguazzin@bloomberg.net, Vernon Wessels, Robert Brand